India's economic recovery more likely to be 'U' or 'W' shaped and not 'V': Analysts

India's economic recovery is more likely to be 'U' or 'W' shaped rather than 'V' as the impact of COVID-19 will be profound on a nation that was already struggling for growth prior to the pandemic, analysts said.

"Before the onset of COVID-19, Indian economy had slowed down to 4.5 percent GDP growth, not participating in the global resurgence of 2018 and 2019," Centrum Institutional Research said in a report on Monday.

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For India, the outbreak of the pandemic came at a most inopportune time as the economy showed nascent signs of recovery after bold measures, from both the government and the Reserve Bank of India.

"India rightly went in for an early lockdown to counter COVID-19, thereby delaying the peak, but will have much slower economic recovery. Given the last two years' lacklustre growth, the government has limited resources to support demand in the economy. Thus, we believe that the impact of COVID-19 will be profound in India and the recovery will be more 'U' or 'W' than 'V' expected in some advanced economies," it said.

Economic recession and recovery are often charted in the most common shapes such as U, V, and W.

V-shaped recessions begin with a steep fall, but trough and recover quickly. W-shaped recessions begin like V-shaped recessions, but turn down again after false signs of recovery are exhibited. They are also known as double-dip recessions, because the economy drops twice prior to full recovery.

In a U-shaped recovery, the economy experiences a sharp decline without a clearly defined trough but instead a period of stagnation followed by a relatively healthy rise back to its previous peak. A U-shaped recovery is similar to a V-shaped recovery except that the economy spends a longer time slogging along the bottom of the recession rather than immediately rebounding.

Centrum said India went for an early lockdown beginning March 25, delaying the peak.

"However, early lockdown though contained the infections and mortality; it will delay the peak also. Some estimates say that India may peak as late as November. This extended period of peaking out will also keep people at home for a longer period, affecting the economic resurgence," it said.

Even before COVID-19, India was struggling for growth as the economy faced demand constraints.

"In this background, India will take a longer time to come out of this downturn. We expect FY20 demand to return only after 2 years i.e. in FY23 for many sectors," it said.

Stating that the rural economy is likely to recover faster than the urban economy, the brokerage said the forecast of a normal monsoon, its timely onset coupled with prospects of a bumper crop output along with minimum support price (MSP) hike and recently announced rural focussed programmes augur well for the rural economy.

"This bodes well for rural income and demand. These developments are likely to cheer farmers and policy makers as they hold potential to diminish the impact of the COVID-19. These trends emerge as a silver lining amid an imminent growth contraction in FY21," it said.

The world over, various countries are in different stages of opening up after going through a complete lockdown for 60-90 days.

Never in history has such a large-scale lockdown been recorded simultaneously. This extended lockdown has had a severe impact on the world economy.

"It is true we have not found the vaccine as yet, but we are seeing the pandemic peaking out in several countries and people finding ways to try to return to 'new normal'," it said adding there are likely to be some permanent changes in dynamics of industries such as airlines, entertainment, and real estate.